A Greek bailout deal can’t help Greek banks

The deal does mean that banks will be recapitalised, which should give the financial system a much-needed boost. But there’s a catch. Here’s the relevant section from the bailout agreement Greece agreed to this morning:

 

Valuable Greek assets will be transferred to an independent fund that will monetize the assets through privatisations and other means. The monetization of the assets will be one source to make the scheduled repayment of the new loan of ESM and generate over the life of the new loan a targeted total of EUR 50bn of which EUR 25bn will be used for the repayment of recapitalization of banks and other assets and 50 % of every remaining euro (i.e. 50% of EUR 25bn) will be used for decreasing the debt to GDP ratio and the remaining 50 % will be used for investments.

 

In short, Greece’s bank recapitalisation is now tied to its ability to privatise a huge amount of state assets. At the last estimate, the European Commission suggested that Greece had raised about €2.6 billion ($2.88 billion, £1.85 billion) from 2010 to the end of 2013, and expected a further €1.5 billion ($1.66 billion, £1.07 billion) to be raised in 2014.

 

So the €50 billion ($55.42 billion, £35.55 billion) is colossal in comparison to what’s been raised so far — and may be unachievable. If so, the funds to pay back the bailout for Greece’s banking nightmare would have to be found somewhere else.

 

Read More: A Greek bailout deal can’t help Greek banks – Business Insider